This is Part 3 of my investor series. If you haven’t already, you should first read Part 1 and Part 2.

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The integration of investors can bring on a number of changes for the company, the owners and the folks in the trenches. The availability of funding is a positive aspect, if properly utilized, but there are other considerations – each of which can be as positive (or negative) as the parties decide to make them.

For the entrepreneur, it can be difficult to let go of a piece of his/her dream. I imagine it must be like sharing a child with someone from outside the family. In situations where funding is essential for the continued survival of the company, accepting this may be easier, but it’s still an issue for most. I’ve heard many founders say things like “This is MY baby!” when an investor is pressing for changes. Enter the green-eyed monster. [Read more…]

This is Part Two of a series, dealing with some of the considerations faced by both entrepreneurs and investors, when they join forces in a venture. Part One can be seen here.

Occasionally, some industrious soul comes up with an idea that is so new, so revolutionary, that it totally changes the face of its niche. And once in a great while, their idea may actually create a niche where none previously existed. The former is normally referred to as disruptive. The latter may or may not be, depending upon its level of success and its trickle-down effects.

Obviously, the folks that give birth to disruptive ideas are creative by nature. They supposedly use the right side of their brain more than the left. It’s the right side of the brain that tends to gather information… information that the left half then analyzes. The attribution of creativity to one side of the brain over the other has been debunked, but for illustrative purposes, will serve. [Read more…]

Those of us that are, or have been, in business for ourselves are all too aware that cashflow is almost always an issue. Whether your hobby business brings you $20-$30K per year, or your corporation measures its revenues in the millions, the successful management of your cashflow is critical to your survival and success.

If growth is a serious part of your business plan, the criticality of cashflow can be even more pronounced.

If your business is doing well, and you recognize greater opportunities to be realized by scaling your operation, then funding (or the lack thereof) can often be the limiting factor. A need for more or better equipment, larger or more experienced staff or simply larger operational expenditures can cause you to reflect on the possibility of gaining additional funding. [Read more…]

Can an Angel Investor Bring Sunshine to a Rainy Day?

Angel investors are basically individuals with available funds to assist with early developmental and operational costs of start-ups (although angel groups are appearing, as well). Their investment presents high risk, as there may be no working prototype yet and the parties are still largely unknown to each other. They are buying a “pig in a poke”, so to speak.

Aside from the perception of marketability of the product, the angel will also have to consider the players. Their skills, capabilities, past history and to some extent, personality will enter into the equation. Most angels will want to be intimately involved with operations, at least early on, and if every decision is likely to degenerate into an argument because of personality clashes or lack of understanding, they may well decide to back away.

Because of the high risk involved in angel investing, most angels will want to see at least a 5X to 10X return on their money over a 5 year period. This can vary greatly, however, depending upon the angel’s exit strategy. The funding provided by an angel investor may be just a few thousand dollars or several hundred thousand. In some cases, it may even reach one or two million dollars.

Funding isn’t the only advantage to joining forces with an angel investor, however. Because they will nearly always be heavily involved in the day to day operations, you’ll also have the benefit of a mentor that is well versed in marketing, finance and operations. In reality, this is often of even greater importance than the money they bring to the table.

For the venture to have the greatest chance of success, it’s important that both parties are totally aware of the strengths and weaknesses of each other, the product and the market. The investor may be more versed in the vagaries of the market, although the entrepreneur will often be much more familiar with the specific niche.

That is why the partnership’s future will often hinge upon the transparency that each offers the other. Entrepreneurs tend to see only the positive possibilities (much like parents), while investors are, by nature, more objective (much like parole officers). Only by frank sharing and extensive communication will they maximize their venture’s potential.

I think the relationship between the entrepreneur and the angel investor is often much like that of newlyweds. There’s an exciting newness, given the expanded opportunities, yet there’s still some perceived negatives.

Kind of like knowing that sex-on-demand is in the offing, but still having that issue with the toilet seat being left up or the bathroom counter being full of new creams and devices.

And in both cases, of course, there’s a certain loss of freedom.

Still, an angel investor can bring some sunshine to an otherwise rainy day. 😉